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Aggregate and sector-specific exchange rate indexes for the Portuguese economy

2009; Coimbra University Press; Issue: 30 Linguagem: Inglês

10.14195/2183-203x_30_1

2183-203X

Fernando Alexandre, Pedro Bação, João Cerejeira, Miguel Portela,

Economic theories and models

In this paper, we compute and compare aggregate and sector-specific exchange rate indexes for the Portuguese economy. We find that alternative effective exchange rate indexes are very similar between them. We also find that sector-specific effective exchange rates are strongly correlated with aggregate indexes. Nevertheless, we show that sector-specific exchange rates are more informative than aggregate exchange rates in explaining changes in employment: whereas aggregate indexes are statistically insignificant in employment equations, regressions using sector-specific exchange rate indexes show a statistically significant and economically large effect of exchange rates on employment.